RISK ASSESSMENT

Fragile growth in an undiversified economy

The fall in raw material prices in 2016 led to a reduction in the country’s rate of growth. Activity remains primarily dependent on the prices of cobalt and copper, as well as shifts in the political and security contexts. Copper production was up 9.3% in the first nine months of 2017, at the same time as that of cobalt increased 18% benefiting from its strong price performance on the international markets. The strength of world demand for cobalt, used in the manufacture of batteries, will be a driving force in what will be moderate growth in 2018. The National Strategic Development Plan (PNSD) could be implemented in 2018 (provide there is political logjam). As part of this plan, agreement has been reached with Chinese companies covering the financing of road infrastructures at a cost of 3 billion dollars, as well as electricity infrastructures in an amount of 660 million dollars with the aim of reducing the country’s energy deficit, in particular with its Zambian neighbour. In addition, the operating agreement between Société Nationale d’Electricité and the largest South African electricity company is going to enable an increase in copper production, the most energy intensive industry in the country. According to the government, the increase in electricity supplies will eventually make it possible to increase copper production by 20%. The high level of inflation, together with the significant depreciation in the Congolese franc (all manufactured goods, as well as most foodstuffs, are imported), will have a serious downwards impact on the purchasing power of Congolese households, meaning that household consumption (74.8% of GDP in 2015) is expected to decline in 2018. With the aim of reducing the pressure on household purchasing power, the Central Bank raised its key interest rates from 7 to 14% in January 2017, then to 20% in June. These remain a long way below the rate of inflation.

Back to small budget surplus and reducing the current account deficit

The budget balance should be in slight surplus in 2018. Public expenditure in mostly (52%) allocated to wages. Compliance with the budget is essentially dependent on operating costs (28% of spending), which exceeded the budget forecasts by 152 percentage points in 2016 and by 52 points in the first nine months of 2017. Following the decision by President J. Kabila to remain in office, there could be a reduction in foreign grants as a result of possible sanctions. Nevertheless, public debt, significantly reduced thanks to the 83% debt write-off in 2010 as part of the IMF’s HIPC initiative, remains viable and set to fall in 2018.

The current account deficit is expected to shrink in 2018 as exports increase, benefiting from higher raw material prices and growing demand for cobalt. At the same time, imports are likely to decline as the country no longer has the means to pay for them. Revenues at Congolese ports, the main entry points for goods, were already down 2017. As an example, revenues at the port of Goma dropped from 186 million Congolese francs in 2016 to 99 million in 2017. The Central Bank has only three weeks’ worth of currency reserves for imports, after having used its currency reserves in an attempt to slow the depreciation of the Congolese franc. In this context, its sources of external finance, mainly FDI and grants, are likely to continue contracting.

Postponing of the presidential election exacerbates problems

The decision by the Supreme Court to postpone the presidential election, initially scheduled for December 2016, allowed the President, Joseph Kabila (in office since 2001, on the death of his father), to hang on to power. The Saint-Sylvestre Agreement between J. Kabila and the opposition for a peaceful handover of power and the holding of elections before the end of 2017 has not been respected. In April 2017, the President appointed a new Prime Minister, Bruno Tshibala, a minor opposition figure. On the 5th November 2017 the Electoral Commission (CENI) published a timetable setting the date of Presidential elections at 23 December 2018, thus allowing the President to continue in office until 2019. According to the regime, the lack of financial resources, as well as the impossibility of holding elections in certain regions (because of the level of violence) vindicated this decision. The elections would have cost in excess of 500 million euros, and foreign funding for the CENI is well below expectations. The leaders of the opposition rejected this timetable and Moise Katumbi, exiled in Belgium, plans to return to Kinshasa before 2018. The unrest has been particularly intense in the Kasai region, in the south, where the anti-Kabila insurrection since August 2016 has led to 5,000 deaths and 1.5 million displaced persons (half of whom returned as the situation calmed down at the end of 2017). In 2017 there were a number of attacks against the UNO mission in DRC (MONUSCO), resulting in the death of a number of blue helmets responsible for protecting civilians. With a strength of 18,000 and an annual cost of USD 1 billion, MONUSCO is the UN’s biggest mission.

Political uncertainty, corruption and weak governance has created an extremely poor impaired business climate (182nd out of 190 countries in the Doing Business 2018 ranking).